Bank of England warns over global economic hit to UK

Bank of England cuts growth forecasts on Boris Johnson's Brexit deal

Bank of England cuts growth forecasts on Boris Johnson's Brexit deal

Sterling fell to a two-week low on Thursday after two Bank of England (BoE) officials unexpectedly voted to cut interest rates this month, and others said they would consider a cut if global and Brexit headwinds did not abate.

Small British manufacturing firms are their most pessimistic since just after the Brexit referendum in 2016 as they face political uncertainty at home and trade wars overseas, according to a survey published on Wednesday.

It also hinted at the possibility that rates may need to be cut if Brexit is delayed again, and since then two MPC members have voiced support for the case for a rate reduction in such circumstances.

Nonetheless, during the presser, BoE Governor Mark Carney indicated that while a reduction in Bank Rate might be needed in order to provide reinforcement to the economy should downside risks emerge, the MPC was not pre-committing.

While policy changes are not predicted this month, given ongoing Brexit uncertainty and a lack of clarity in British politics ahead of the United Kingdom election, the bank's forward guidance could influence the Pound.

"Two members preferred a 25 basis point cut in bank rate at this meeting", the minutes read.

As a result we can expect to see political uncertainty infuse some greater volatility into Sterling. The 2022 growth rate is above Britain's long-term trend and would push inflation back above the BoE's 2% goal, the central bank said.

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The Conservatives and the main opposition Labour Party on Thursday each promised billions of pounds of investment for hospitals, schools and infrastructure as they seek to woo austerity-weary voters ahead of the December 12 vote.

Michael Saunders and Jonathan Haskel argued that the economy had "a modest but rising amount of spare capacity" and that underlying inflation was "subdued" below the bank's target rate of 2%.

The central bank said that if Parliament ratifies Mr. Johnson's Brexit deal and the government inks a free-trade agreement with the European Union similar to the bloc's pact with Canada, then the economy would notch up slow but steady growth in the years ahead.

At this point, buying the dips still continues to work regardless of what the Bank of England says.

The central bank forecast growth of 1.25% this year, a similar pace in 2020 as a free-trade accord is negotiated, and slightly faster growth of 1.75% in 2021.

Prime Minister Boris Johnson called for an early election to break the Brexit impasse in the hope of gaining a majority in parliament to be able to pass his Brexit deal.

The bank said growth has been volatile this year in part because of Brexit preparations.

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